"I am designing a compensation plan for senior management at a company that effectively sells a service contract that has a 10-20 year duration. These are high-priced deals....$500k or more per year in revenue. The company is still in its start-up phase. I would like to get some suggestions from people on how similar companies have rewarded executives and sales professionals. One the one-hand, a more conservative perspective would say, ""the company is still early, it's growing rapidly so it needs the cash and shouldn't be spending too much on cash compensation."" On the other hand, we must reward employees and in particular if they exceed sales goals. For example, what if we set a goal of signing 3 contracts a year and someone signs 10. How have other companies looked at the ""value"" this employee or group is providing and rewarded them? Thanks so much!!! "

1.) you may want to think about stock options to reward employees in such
situation.

2.) Since its a start up, i think the number of employees must be less and
the probability of everybody achieving the set target is also less, the
number might be just one or two people, you might want to sponser vacation
for the employee and the family.

3.) You can also consider Car lease programme where the employer ties up
with a third party who will provide a new car to the employee and the
employee needs to pay the complete cost of the car in part during his
tenure, if the employee pays the complete amount he will own it but he t
leave before the paying he would be eligible for the repayment of to date
paid amount..

Employer only plays the role of a facilitator between the third party and
employee.

This programme is little complicated from the implementation part but is
very exciting, iam not sure what else could be of the same worth in your
country.

4.) You can also think about small and continous perks instead of one big
incentive at the end of the year or completion of assignment like sponsring
a lucnh or dinner, or gift voucher with certificates, movie tickets also..

> Posted by jasonbgold(CEO)
> on Mar 8 at 7:08 PM
> I am designing a compensation plan for senior management at a company that
> effectively sells a service contract that has a 10-20 year duration. These
> are high-priced deals....$500k or more per year in revenue.
> The company is still in its start-up phase.
> I would like to get some suggestions from people on how similar companies
> have rewarded executives and sales professionals.
> One the one-hand, a more conservative perspective would say, ""the company
> is still early, it's growing rapidly so it needs the cash and shouldn't be
> spending too much on cash compensation.""
> On the other hand, we must reward employees and in particular if they
> exceed sales goals. For example, what if we set a goal of signing 3
> contracts a year and someone signs 10. How have other companies looked at
> the ""value"" this employee or group is providing and rewarded them?
> Thanks so much!!!

Answered

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Ian_MacRae

March 12, 2010 01:26 PM

With a long duration contract, there are a number of factors you'll want to consider. They include cancellations mid-contract and service requirements through the contract duration. Should your sales folks own the contract relationship through it's duration or is the approach to close the sale and hand the relationship off to a sales support team? If the former, then you'll need some trailer fees that make it worthwhile for the sales person to stay involved. You may want to front-end load a closure fee, which can be a percentage of first-year revenue. You'll need clawbacks for cancellations.

If there is a hand-off to a support team, then your one-time payment will need to be a percentage of total contract revenue, with clawbacks if cancelled. Then the revenue responsibility for the ongoing relationship is owned by the support team, who can share in a bonus pool based on total annual revenue. All payment calculations should be incorporated into a cost-of-goods sold calculation, so that overall corporate margins are maintained.

You'll notice I'm talking all cash. I believe you need that to strongly incent sales actions with cash. You can look at long-term plans, maybe stock-based, after the company has some track record and the sales patterns are better understood.

Your executives should be rewarded based on a mix of sales and corporate results. Again, you may want to defer a long-term plan until there is a developed culture that can guide how best to reward and retain your executives.

I hope this helps. Please let me know if you'd like some direct communication and more detailed advice.